2017 Commodity Index Returns

After a summer swoon, commodity indexes recovered and finished 2017 unchanged to slightly up on the year.

VISTA= the Vista Commodity Excess Return Index

BCOM = the Bloomberg Commodity Excess Return Index

GSCI = the S&P GSCI Commodity Excess Return Index

The annual returns and standard deviation of annual returns since the 4/30/2009 inception of the Vista Index are presented in the table below. Returns are all continuously compounded. 

Returns VISTA BCOM GSCI         *2009 23.1% 23.0% 24.7% 2010 22.9% 15.4% 8.5% 2011 -4.1% -14.4% -1.2% 2012 1.5% -1.2% 0.0% 2013 -12.3% -10.1% -1.3% 2014 -19.3% -18.7% -40.2% 2015 -21.2% -28.4% -39.9% 2016 10.8% 10.8% 10.4% 2017 2.8% 0.7% 4.7% 3 Year -2.5% -5.6% -8.3% 5 Year -7.8% -9.1% -13.3% Standard Deviation 3 Year 13.6% 16.6% 22.5% 5 Year 12.6% 13.8% 22.2%

Since inception, Vista has beaten the BCOM 6 out of 8 years and the GSCI for 5 out of 8 years.  Vista's 3 and 5 year average returns beat them again, with strong margins.  Of note, Vista shows considerably less risk than either the BCOM or the GSCI.

Commodity returns for 2017 are shown in the following chart:

Of the fifteen commodity components within the Vista Commodity Index, seven, nearly half, ended the year with gains. Soybeans were the strongest performer up over 20%, while Frozen Concentrated Orange Juice was the weakest with a +30% decline.  

Conclusion

With any luck, 2018 can be a turning point for the commodity market building on the gains of the last two years. As low interest rates and low inflation give way to stimulus and increasing worldwide demand, commodities should gain a bid. Considering the all-time highs of most other markets, commodities may now be a timely investment.

Feel free to post comments.

Disclaimer: The above is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors

Holding Period Returns

Stock indexes rising to new highs, again, in 2017 as they have since their inception, has somehow become controversial. Many voices, mainly by active managers on Wall St., have risen against stock indexes. The chorus is cautioning investors against index funds. This post will examine the returns and risks of stock indexes in more depth.

VFINX

As usual, let's start with the index you can buy, the Vanguard Investor Class S&P 500 Index Fund, VFINX:

Note there is a long history of new highs in the index, the Yahoo data begins in 1980. Note also there are ups and downs, its not a straight line up.

Holding Periods

This begs the question: what happens to investors when you buy the index? What is one's risk? What can one expect? To properly answer this question lets look at returns for a wide range of holding periods. A holding period assumes you buy the stock, hold it for the period, and then sell it.

What holding periods do we measure? Lets go with the standard set: 1 month, 3 month, 6 month, 1 year, 3 year, 10 year etc. etc. Here are the results:

The frequency chart above shows, for example, that VFINX had positive returns for a little over 60% of all 1 month holding periods. There are 9553 1 month holding periods since 1980, 6094 had gains, 3459 had losses.

Note that as we increase the holding period, the percentage of losses decline. This is expected in any bull market. Thus, historically, since 1980, 5529 3 month holding periods have had gains!

Below are the average ANNUALIZED returns for each holding period shown.

This data, we have to remember, starts with 1980 to present, an extraordinarily bullish period for equity markets. This includes the 300% gains of the Obama period and the +20% gains today. 

The table below shows the expected TOTAL RETURN and risk for short-term and long-term holding periods.

	1mo	3mo	6mo	1 yr
Average	0.8%	2.5%	5.0%	9.9%
Std. Dev.	4.6%	7.6%	11.0%	16.1%
Maximum	21.3%	34.1%	40.6%	54.4%
Minimum	-35.5%	-51.4%	-61.2%	-64.4%

3 yr 5 yr 10 yr 15 yr 20 yr 30 yr Average 30.0% 49.5% 104.0% 153.1% 201.9% 298.6% Std. Dev.  27.6% 35.4% 50.6% 56.2% 31.8% 11.5% Maximum 86.2% 125.2% 196.6% 263.9% 289.1% 331.3% Minimum -58.1% -43.0% -24.2% 53.1% 140.2% 262.2% Conclusion In any give year, investors have roughly a 40% risk of loss and 60% chance of gain. Yearly losses can easily exceed 20% (2 standard deviations) with an extreme of -60% in any given year.  This is why short-term investing is so risky!  5 year holding periods cut the extreme to a 40% risk of loss and the numbers only get better with time. Feel free to post comments. Disclaimer: The above is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

How MANY New Highs since the election?

Stock market new highs have been touted in the political press. There have been claims of superior market performance under the current President. Lets examine this claim using the Yahoo adjusted closing prices of Vanguard's Investor Class S&P 500 Index Fund, VFINX.

Starting with election day to yesterday's close, we have the following results:

11/8/2016 Closing Price: 194.1598

12/14/2017 Closing Price: 245.8000

Number of Trading Days: 277

Number of New Highs: 76

Total Return: 23.5%

These look like great results and have been touted as such by the President and his supporters.

Let's look at, in fairness, the same period for the previous Presidential election.

11/7/2012 Closing Price: 116.9041

277 Trading Days After Election, 12/12/13 Closing Price: 152.2273

Number of New Highs: 69

Total Return: 24.09%

Another interesting comparison are the quarterly GDP growth rates.

If nothing else, these comps puts many claims in perspective. 

Feel free to post comments.

Disclaimer: The above is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.

Commodity Indexes

The broad-based Vista Commodity Index™ of 15 diversified commodity futures was unchanged to 3 decimal places in November and to two decimal places for 11/30/2017 year-to-date. The Bloomberg  (BCOM, formerly Dow Jones-UBS) and S&P GSCI commodity indexes, down 2.09% and up 0.05%, respectively, were likewise mired in the low inflation, low demand world environment.

Returns of the 15 commodities composing the Vista Commodity index show the dismal results.

Copper was the leader as it benefitted from its traditional correlation to housing and the stock market, both sharply up for the period. Softs were down across the board, energy was lackluster and gold is up less than 10%. The rise in this year's demand was wholly offset by aggressive suppliers.  The outlook for commodities will rise and fall with world demand and the ability of suppliers and technology to keep up or fall off.

Feel free to post comments.

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Russell 2000 IWM and TNA

After looking at the Nasdaq, lets jump right into the iShares Russell 2000 ETF (IWM) and its triple-leveraged cousin the Direxion Daily Small Cap Bull 3X ETF (TNA). We will compare these to the SPY.

TNA, like all the other leveraged broad-based ETFs, has been on fire for years. The 3X variety has been triple on fire.  As with the other 3X funds, TNA is marketed as a short term vehicle with the goal of delivering, for a day, 3X the return of the Russell 2000 index of small cap stocks. Brokers caution individual investors with higher margin requirements for these kind of ETFs.

IWM, the largest Russell 2000 ETF began trading 5/26/2000. The TNA inception date is 11/19/2008. For fair comparisons our analyses begin with the TNA start date. Here are the results.

IWM and SPY look like straight lines compared to TNA.
Continuously compounded returns follow:

Annualized Returns
as of 12/1/2017
	TNA	IWM	SPY
1 month	94.8%	34.3%	31.6%
3 month	99.0%	35.1%	27.9%
6 month	51.1%	19.3%	17.9%
1 year	43.3%	17.0%	20.6%
3 year	21.5%	10.6%	10.2%
5 year	32.3%	13.9%	14.5%
Since TNA Inception	26.1%	14.4%	13.7%

*Since TNA Inception 11/19/2008 to 12/31/2008 **Year-to-date 12/1/2017 TNA IWM SPY Avg. Ann'l Returns 26.1% 14.4% 13.7% St. Dev. of Ann'l Returns 37.4% 11.8% 7.9%

Risk and Reward
as of 12/1/2017
	TNA	IWM	SPY
3 year mean	21.5%	10.6%	10.2%
3 year standard deviation	42.2%	13.8%	9.6%
5 year mean	32.3%	13.9%	14.5%
5 year standard deviation	33.4%	10.8%	8.5%

Conclusions

First consider IWM versus SPY. They are comparable in returns. Note SPY beat IWM 5 of the 10 periods. IWM's average return is a little higher but the risk is significantly higher.

Now look at TNA. It comes up short of 3X in the gain department, though still a significant gain all around. Returns ARE spectacular. But look at that risk! TNA's risk is more than 3X the IWM risk and 4X greater than SPY.  Again, buckle your seat belt if you go for TNA's higher returns.

Feel free to post comments.

Disclaimer: The above is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.